October 25, 2024, Filed Under: Working PaperPlaying with blocs: Quantifying decoupling EMPCT Working Paper Series No. 2024-0741 pages | PDF Download | PDF in Browser Citation:Bonadio,Barthélémy, Zhen Huo, Elliot Kang, Andrei A. Levchenko, Nitya Pandalai-Nayar, Hiroshi Toma, and Petia Topalova, “Playing with blocs: Quantifying decoupling” October, 2024 Barthélémy Bonadio Andrei A. LevchenkoPetia Topalova Zhen HuoNitya Pandalai-Nayar Elliot KangHiroshi Toma AbstractWe adopt a data-driven approach to measure trade fragmentation over the period 2015-2023. We assign countries to the US bloc, the China bloc, or to an unaligned group based on whether their trade costs with the US and China increased or decreased over this period. We find that the US bloc and the China bloc each contain roughly a quarter of the countries in the world, with about half the countries remaining unaligned. However, we also find that as cross-bloc trade costs increased, within-bloc trade costs fell. We use a quantitative model to compute the real income effects of this reconfiguration of the global trade costs. The median country in the world, and the median country within each bloc, has 0.4-0.6% higher real income as a result of the observed decoupling, contrary to the widespread belief that fragmentation has been welfare-reducing. Finally, we find a modest amount of bloc misalignment: the median country in the US bloc would actually be better off in the China bloc, and vice versa. These results suggest that trade decoupling does not always follow trade-driven economic interests.
